Consumer Group Boosts Ackman’s Bet Against Herbalife

In a press release this morning, the National Consumers League (NCL) called on the Federal Trade Commission (FTC) to “investigate recent allegations that the multi-level marketing company Herbalife [Ltd. (NYSE: HLF)] is, in actuality, a sophisticated pyramid scheme.” The NCL is seeking an examination both of the charges leveled against Herbalife by Pershing Square Capital Management and its chief, William Ackman, and Herbalife’s response to those charges.

In its letter to the FTC, the NCL notes:

Pershing Square’s research suggests that Herbalife‘s business practices may run afoul of many of the “red flags” of pyramid scheme activity in NCL’s guide.

For its part, Herbalife responded to the NCL’s letter in a statement to The Wall Street Journal:

We regret that the National Consumers League has permitted itself to be the mechanism by which Pershing Square continues its attack on Herbalife. If anything, it is Pershing Square that should be investigated by appropriate authorities. Its actions are motivated by a reckless $1 billion bet against the company based on knowingly false statements about Herbalife.

So far Carl Icahn has not weighed in, but don’t be surprised if the activist investor raises his stake in Herbalife again.

Ackman, as might have been expected, praised the NCL:

We are pleased that the National Consumers League, the nation’s oldest and one of the most respected consumer protection organizations, has requested that the FTC launch an investigation of Herbalife. We believe that a thorough investigation of Herbalife will reveal it to be a pyramid scheme that has harmed millions of consumers in more than 80 countries around the world.

We’ve said before that Ackman’s goal here has got to be to force the FTC to launch an investigation into Herbalife. If that happens, his short bet against the company will pay off. The outcome of such an investigation would hardly matter.

Shares of Herbalife are down about 2% at $39.60 in a 52-week range of $24.24 to $73.00.